Portugal crumbles after ‘architect of austerity plan’ leaves government

Although he has barely reached half of the legislature, during the last two years and under the tutelage of the “troika” IMF/ECB/EU–and with a €78 billion bailout–, the Portuguese Prime Minister Pedro Passos Coelho has had to change one third of his government team.

Adding ministers and secretaries of state, there have been fourteen substitutions or resignations. Three of them are of great political significance: his “right hand” Miguel Relvas, who left the government when it was discovered that he had taken his degree in law without passing any exams; the very relevant “number two” executive member Paulo Portas, who resigned on Tuesday night; and less than 24 hours before, super-minister of Finance Vítor Gaspar, who abandoned after he had concluded that he did not have sufficient political support within the centre-right government PSD/CDS and particularly because the whole country was against him.

In fact, the resignations of Portas and the so-called “architect of austerity” are the result of the failure of the “harsh remedies” applied during the last two years in Portugal: what the opposition and public opinion are demanding now is that President Cavaco Silva sign the death certificate of the Government and coalition PSD/CDS, dissolving parliament and holding early elections.

No U-turns are in the pipeline, though. The “super ministry” of Finance has now the face of 46-year-old Maria Lourdes Albuquerque. She is no stranger and has occupied important functions in the previous government–as secretary to the Treasury. Her appointment was indeed welcomed by the representatives of the “troika”, who met her during the bailout negotiations.

There is still a year ahead of the end of the rescue plan, and if not remedied by Cavaco Silva calling new elections and opening discussions for the formation of a new “national unity government”, all or most of what is decided in Portugal until at least June 2014 in terms of austerity measures, new spending cuts, structural reforms and so on, will still dictated by the ” troika “.

Moreover, despite receiving margin of confidence by the representatives of the “troika”, Maria Lourdes Albuquerque assumes his new duties with a heavy “handicap”: she is former financial director of the regulator that oversees the financial operations of the public sector, for which her name ended very closely associated to the “toxic swaps” scandal–some products considered “high risk” and that several highly indebted public companies signed for the past years with several national and international banks to protect themselves against possible increases in interest rates, but which generated more than €3 billion of potential losses for the state coffers.

Nearly half of them were “swaps” bought to Banco Santander, which unlike other financial institutions that have generally preferred to negotiate with the state and accepted a substantial haircut, has brought the issue to court to deny the alleged “toxicity” of their “swaps”.

The fact is that the overall picture in the country today is much worse, in nearly all aspects, than the one Passos Coelho inherited from the socialist government of Jose Socrates, whose resignation was forced mainly by the PSD and the CDS under the pretext that austerity measures negotiated by the Socialists with the “troika” would prove unbearable costs for the public finances and the economic activity, for employment and for the whole population. Now the debt ratio has risen almost 30 points to about 130% of GDP, the budget gap will exceed 8% this year and the unemployment rate approaches 20%.

Whether the political scene tumbles and the government moves in anti-austerity cercles, though, it is certain that Portugal will not breathe again the air of past prosperity in the coming months or even years.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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